Tax changes boost public dealerships

Editor's note: An earlier version of this story used an incorrect figure for Penske Automotive Group's fourth-quarter one-time tax boost. The correct figure is $243.4 million.

Publicly traded dealership groups turned in generally good results in the fourth quarter. Then U.S. corporate tax cuts pumped up those earnings -- often by a lot.

Take Penske Automotive Group Inc., of suburban Detroit. Its fourth-quarter net income quadrupled, to $330.1 million, helped by a one-time $243.4 million boost from the tax changes.

Excluding that gain, the auto retailer's quarterly adjusted net from continuing operations rose 12 percent to $86.6 million as it boosted gross profit across all operations in its retail automotive business.

Likewise, net income at Group 1 Automotive Inc., of Houston, surged to $110.5 million in the fourth quarter from $30.8 million a year earlier.

Group 1 saw higher profits in all three of its regions: the U.S., U.K. and Brazil. Across all regions, gross profit grew in new-vehicle, retail used-vehicle, and parts and service operations. In the U.S., finance and insurance gross profit per vehicle retailed hit a record $1,700.

But the near quadrupling in net reflected more than strong operational results. Group 1 also booked a one-time tax benefit of about $73 million after taxes, partially offset by a one-time aftertax noncash asset impairment charge of about $6.5 million.

If that sounds like complicated accounting, consider Asbury Automotive Group Inc., of Duluth, Ga.

Uncle Sam giveth

One-time gains from changes in U.S. corporate tax rates pumped up Q4 earnings at dealership groups.

Amount

% change

Asbury

Revenue

$1.67 billion

0.30%

Tax gain

$7.9 million

Net

$42.5 million

–37%

AutoNation

Revenue

$5.68 billion

3.70%

Tax gain

$41 million

Net

$151.3 million

31%

Group 1

Revenue

$2.92 billion

9.20%

Tax gain

$73 million

Net

$110.5 million

258%

Penske

Revenue

$5.4 billion

10%

Tax gain

$243.4 million

Net

$330.1 million

300%

Source: Companies

Asbury's fourth-quarter net included a $7.9 million benefit from the U.S. tax law changes, offset by a $5.1 million pretax loss for franchise rights impairments, leaving a gain of about $2.8 million. But a year earlier, its bottom line included three extraordinary gains and one loss, which combined for a one-time gain of $52.5 million.

On a same-store basis, Asbury's gross profit fell 3 percent on new vehicles and 6 percent on used vehicles, including both retail and wholesale, but it rose 2 percent in parts and service and 6 percent in F&I.

At AutoNation Inc., of Fort Lauderdale, Fla., fourth-quarter net income climbed 31 percent from a year earlier to $151.3 million. The tax changes added $41 million to income from continuing operations.

Same-store gross profit climbed 7.3 percent from a year earlier, driven by an 11 percent rise in F&I gross profit per vehicle retailed to a record $1,732, a 6.3 percent increase in parts and service gross profit to $369.1 million and a 16 percent gain in used-vehicle gross profit to $74.4 million.

Asbury, Group 1 and AutoNation all outperformed the market in new-vehicle sales. While industrywide sales in the fourth quarter slid 1.8 percent, U.S. same-store sales grew at those groups: Asbury's rose 0.9 percent to 24,384 vehicles, Group 1's rose 4.4 percent to 33,157 and AutoNation's rose 4.2 percent to 86,125. Penske does not break out U.S. same-store sales results.

While the tax windfalls were one-time gains, several dealership groups said they see benefits down the road as well.

For example, Group 1 said it estimates the U.S. tax changes will reduce its effective tax rate to 23 to 24 percent starting this year, from about 36 percent previously, and improve annual cash flow by about $20 million.

Asbury estimates its effective tax rate will drop to 25 to 26 percent from about 38 percent. And Penske noted that the new tax law should allow it to repatriate its international earnings "in a tax favorable manner."